If a Country Pegs Its Currency to a Foreign Currency

question 79

Multiple Choice

If a country pegs its currency to a foreign currency, it no longer has the ability to use monetary policy to stabilize the economy because:

• A)it no longer has a central bank.
• B)monetary policy must be used to keep the exchange rate's market equilibrium value at its official value.
• C)banks will begin to hold 100% of their deposits in reserves.
• D)it must eliminate its currency from circulation and replace it with the foreign currency.

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Definitions:

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Elite Democracy

A model of democracy in which a small number of people, usually those who are wealthy or well-educated, influence political decision making.

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